Bad Credit Home Loan Refinancing: If You Don't Understand Your Mortgage You Could Be Buying Trouble

By Gabriel Traverso
Mortgage Credit Problems Columnist

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The details of a home loan can be quite confusing. In fact, many homeowners not only don't understand how their mortgage works, they don't even know what they're really paying. As you shop for your bad credit refinance make sure you understand the terms of the mortgage you're considering.

Home Loan Refinancing Snares

There are a number of homeowners in trouble right now because they bought mortgages they couldn't afford. Before you make the same mistake refinancing your mortgage, arm yourself with information. Every lender is required to provide you with a truth-in-lending document explaining the cost of the home loan and how it works. If you sign all the documents and refinance without understanding the loan, do you really have anyone other than yourself to blame? Ask your mortgage lender to explain the good faith estimate to you and keep asking questions until you are confident that you understand. Then make your decision.

Home Loans are Complicated

Don't worry--you're not alone if you don't understand how your mortgage works. In a recent study the Federal Trade Commission discovered that of those polled almost nine out of ten borrowers did not know how much the up-front charges were for their mortgage. Four out of five could not explain why the stated interest rate on the home loan was different from the annual percentage rate. Two thirds of the borrowers who participated in the study did not realize there were penalties for refinancing early. The truth is that mortgage documents are very complicated, but it is your responsibility to make sure you understand everything.

Use Your Resources

MortgageCreditProblems.com is an excellent resource for learning more about how mortgages work and what to watch out for when you refinance. Ask friends and family what they know about mortgages. Lastly, ask your lender. If you don't understand your current mortgage call and ask questions until you do.


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